A combination of a high GHG price and targeted e-fuel subsidies are crucial policy measures to make scalable zero-emission fuels like green ammonia economically competitive with other early compliance options like LNG, biofuels, and CCS, reports UCL Shipping and Oceans Research Group.
Incentivising e-Fuels
A new report from the UCL Energy Institute Shipping and Oceans Research Group and UMAS highlights significant risks in some of the International Maritime Organization’s (IMO) proposed options for enabling the shipping industry’s energy transition. This analysis comes as the IMO prepares for crucial negotiations in February and April 2025 to finalize mid-term measures for reducing GHG emissions.
The study finds that a Global Fuel Standard (GFS) combined with a flexibility mechanism, even with a multiplier to incentivize e-fuels, is unlikely to trigger an e-fuel transition before 2040.
The report emphasizes that only policies with targeted incentives for e-fuels, such as subsidies or rewards funded by revenues from a GHG price or levy, can effectively bridge the gap between e-fuels and more readily available early compliance options like LNG, biofuels, and Carbon Capture and Storage (CCS).
Without such targeted incentives, the industry risks becoming locked into alternative fuels that could hinder the achievement of long-term decarbonization goals and increase the overall cost of the transition.
This finding aligns with previous research by DNV for the IMO, which identified a scenario combining a GFS and a high universal GHG price (levy) as the most effective pathway for the lowest-cost energy transition.
Energy Transition
The analysis reveals that a GHG price starting at $150 per tonne of CO2e could generate sufficient revenue to support both the energy transition and ensure a just and equitable transition for affected communities. In contrast, a starting price of $30 per tonne of CO2e is unlikely to provide the necessary support to initiate and scale the energy transition within the 2027-2035 timeframe.
Dr. Tristan Smith emphasized the critical role of the IMO’s fuel standard in providing long-term certainty and driving investment. However, the analysis indicates that under the current policy framework, the market will struggle to establish a viable e-fuel business case before 2040, hindering the widespread adoption of e-fuels like green ammonia.
The study highlights that the role of a GHG levy extends beyond addressing equity concerns. It is crucial for enabling shipping’s energy transition and minimizing long-term transition costs.
The study’s findings directly impact the viability and costliness of the IMO’s Revised Strategy targets. Without immediate action to initiate the e-fuel transition, the sector risks becoming locked in a vicious cycle. A lack of clear business cases will discourage investment, hindering learning, cost reduction, and supply chain development, ultimately making e-fuels scarce and expensive.
Conversely, a clear signal from the IMO’s mid-term measures can unlock long-term investment, stabilize returns and asset values, and unlock numerous co-benefits, including those related to a just and equitable transition.
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Source: UCL Shipping and Oceans Research Group
